4 investment principles that cemented Walter Schloss’s position among the world’s iconic investors

4 investment principles that cemented Walter Schloss’s position among the world’s iconic investors

Walter Schloss, an iconic American investor, achieved significant success through his adoption of the value investing approach. A dedicated follower of Benjamin Graham, the pioneer of value investing, Schloss’s investment strategies are continually analyzed and implemented by contemporary investors.

Walter Schloss gained valuable experience while working directly with Graham at Graham-Newman Corp. in the 1950s. During this time, he absorbed Graham’s principles of value investing, which laid the foundation for his successful approach.

In 1955, Schloss started his investment partnership, initially managing funds for family and friends. Remaining steadfast in his commitment to value investing, he consistently generated impressive returns over the following years.

Over 45 years, Walter J. Schloss Associates has achieved an average annual return of 15.3%, outperforming the 10.5% return of the S&P 500. This outstanding performance cements Schloss’ status as a master of value investing. His penchant for investing in smaller, overlooked companies has resulted in many hidden gems in his portfolio. Notable gains include a 50-fold return from Blue Chip Stamps and a ten-fold growth in Emerson Radio.

Below are some basic principles of Walter Schloss’ investment philosophy:

Concentrate on low-priced stocks

Schloss advocates acquiring stocks that are trading below their intrinsic value. He used different metrics, including price-to-book ratio, price-to-earnings ratio, and dividend yield, to identify undervalued stocks.

Schloss goes beyond the benchmarks to gain a deep understanding of a company’s intrinsic value. He scrutinizes annual reports, industry publications, and personally visits companies to gain personal insight into their operations and prospects. In his assessment of potential investments, Schloss considers factors such as management quality, brand strength, competitive advantages, and the broader economic climate. Unafraid to swim against the tide, he invests in stocks that are unpopular and overlooked by others. Schloss’s independent analysis enabled him to uncover hidden gems ahead of the crowd.


Be patient and maintain discipline

Schloss, as a long-term investor, advocates for the practice of holding stocks for a long time. He doesn’t hesitate to wait for his investments to mature, even if it takes long periods of market volatility.

Schloss became famous for ignoring short-term market fluctuations, consistently refusing to allow daily or quarterly changes in his investment decisions. He understands the potential for emotional mistakes and straying from a solid, long-term strategy when adjusting to daily market movements.

Throughout his investment career, Schloss has faced numerous market crashes and periods of extreme volatility. However, his unwavering faith in his research and the intrinsic value of his assets enabled him to remain calm and weather the storms. Recognizing that short-term downturns often provide opportunities for patient investors, he maintains his calm approach.

Through the discipline of holding his investments for the long term, Schloss harnesses the power of compounding, where earnings are reinvested and grow exponentially over time. This method results in higher returns compared to regular trading activities.

Implement portfolio diversification

Schloss follows the principle of distributing his investments in a diverse range of stocks to reduce risk. Typically, he maintains a portfolio consisting of 50 to 100 stocks.

Diversification plays a key role in Walter Schloss’ investment strategy. By maintaining a variety of stocks covering different sectors and industries, Schloss effectively mitigates the impact of any individual company’s poor performance on his overall portfolio. This method protects him from scenarios where the weakness of one investment can affect the entire collection.

The practice of holding a diversified portfolio enables Schloss to explore a wider range, increasing the likelihood of discovering hidden gems in overlooked sectors or smaller companies. This diversified approach broadens his access to potential sources of alpha, which represent excess returns beyond the market average.

Diversity plays a role in helping Schloss navigate the emotional biases that affect investment decisions. With his investments spread across different assets, he reduces the possibility of becoming overly attached to any particular stock, thereby mitigating the potential for making irrational choices driven by emotions such as hope or fear

Maintain emotional calm

Schloss demonstrates a composed and rational approach to investing, avoiding giving in to his emotions. He avoids impulsive decisions, remaining steadfast in following his established investment plan.

Schloss recognizes the significant influence of emotions on investment decisions. He actively resists emotions such as greed during market highs and fear during lows, following his carefully crafted investment plan and avoiding impulsive reactions.

He ignores the emotional manipulation that is often prevalent in financial news and market commentary. Instead, Schloss prioritizes hard data, extensive research, and his analysis to make informed decisions rather than knee-jerk emotional reactions.

Accepting a long term investment, Schloss distanced himself from the daily fluctuations of the market and emotional rollercoasters. This perspective enables him to make informed decisions based on fundamentals instead of succumbing to short-term concerns.

Walter Schloss’s impact extends beyond his extraordinary individual returns. His legacy is rooted in enduring success and a commitment to disciplined value investing. The principles he advocates, promote long-term and disciplined methods of investment valuation, maintaining their relevance and providing valuable lessons for investors of all levels of experience. Whether you’re a seasoned investor or a novice, examining Schloss’s approach can provide valuable guidance.

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